NAB exec spelled out his fears

A SENIOR National Australia Bank executive expressed grave concerns about the credit market in an obscenity-laden email sent in February 2008, two months before the bank officially recognised a portfolio of sub-prime loans were damaged goods.

Manny Arabatzis, the head of securitisation at nabCapital, told a friend at the bank the organisation's position depended on ''blind luck''.

NAB eventually took write-downs of more than $1 billion on its exposure to collateralised debt obligations, sending its share price plummeting and sparking a shareholder class action.

Mr Arabatzis set out his concerns about the CDOs in an internal email containing his proposed presentation to a risk management committee meeting.

"In short, we may or may not be f----ed!! Key dependency: Blind Luck'' ... Manny Arabatzis. Photo: Jessica Shapiro

''Markets are f---ed,'' Mr Arabatzis said in the email, sent to nabCapital's global head of credit, Carmine Veltro. ''Investors are f---ed. Liquidity is gone. Ratings agencies are f---ed and trying to rate to market value rather than through the cycle, cash flow analysis. In short, we may or may not be f----ed!! Key dependency: Blind Luck.''

A NAB spokeswoman said the email was ''not a comment on the ABS CDOs relevant to the proceeding''. ''It is an email sent between two NAB managers who were friends, was by no means an attempt at serious analysis of markets,'' she said. ''Written during February 2008, weeks prior to the collapse of Bear Stearns, when the market was experiencing significant uncertainty and volatility, it does little more than demonstrate the real concern of those close to the market about the developments of what ultimately became the GFC.''

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NAB emails produced as part of the class action, running in the Victorian Supreme Court, show at about the same time the regulator was putting the bank under pressure over its treatment of the CDOs.

The emails show that in February 2008 NAB group chief risk officer Michael Hamar warned other executives the Australian Prudential Regulation Authority had told the bank it had ''failed in our basic credit analysis'' of the CDOs.

APRA officer Graham Johnson observed NAB was too reliant on ratings agencies and had not done enough of its own work analysing the underlying securities, Mr Hamar said.

The emails also show the bank met with APRA officials to discuss the CDOs four times in early February. ''From these meetings it was clear that APRA felt we had been slow on recognising provisions against conduit assets,'' nabCapital chief executive John Hooper said in an email to staff.

Lawyers representing NAB shareholders, Maurice Blackburn, last week asked the Victorian Supreme Court to order APRA to produce details of its talks with the bank over the toxic assets - a move strenuously resisted by the regulator.

Tomorrow, Justice Tony Pagone is expected to hand down his decision on whether the APRA should produce the documents.